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How Basic Income Will Save Capitalism

If it were just a safety net for
the poor or even a way of lessening inequality, I doubt a guaranteed basic
income policy would ever come to pass. Worthy programmes that help the poor
aren’t an easy sell these days. Indeed,
advocating them is generally seen as a sign of naïveté. Nonetheless I am
convinced that in the not too distant future, all the major advanced capitalist
economies will adopt some form of basic income guarantee. Thought utopian today, soon it will be called
merely impractical, and ultimately, inevitable.
My confidence in this happy outcome is not because providing a basic
income is moral, equitable and affordable but because basic income cleanly and
neatly solves the bête noire of our modern capitalist economies: lack of
demand.

After all, supply isn’t the issue.
Today, despite our never-ending economic travails, the world economy has more
capacity, is more productive than it was during the halcyon days of the
boom. We can make more goods and services
with fewer inputs than we could in 2006.
And yet, British and World GDP remain lower today than they were 6 years
ago. George Osborne, with his odd fetish for austerity, doesn’t get it but I’m
sure readers of Pieria understand what is going on.

Our problem is one of demand. We can make more goods and services than we
can afford to buy. The solution, which
Keynes figured out 80 years ago, and undergraduate economics students have been
taught for generations, is the stimulation of demand by government fiscal
policy. That policymakers have forgotten what they learned in their first
economics class one of the mysteries of the age. Basic income solves the
problem of demand.

Even Republicans understand the
simulative effect of tax cuts. By
putting more money in consumers’ pockets, their spending increases. As consumer
spending rises, firms find a reason to hire and invest. Tax cuts and government
spending inevitably stimulate the
animal spirits of the private sector and so spark recovery. Unfortunately, tax cuts, though politically
popular, are the worst way to stimulate spending. Generally they favour the richer citizens of
a society who are more likely to save their windfall rather than spend it, as
the economy requires. A basic income that goes to all citizens has more
equitable distribution, which means almost all of it gets spent.

Lack of demand, or its corollary,
overproduction, is not just a problem today. Ever since the Great Depression,
demand has been the Achilles heel of capitalism. For the past eighty years, we
have solved this problem in three ways.
From 1939 to 1945, it was war. Everyone
knows it was World War II that
ended the Great Depression but It is worth remembering that is wasn’t the
destruction of cities, factories, and people that regenerated the world
economy, it was the putting of money into workers’ pockets. Then, like today, our productive capacity
exceeded our effective aggregate demand.
Basic income allows us to create demand without the added bother of destroying
Dresden.

In 1945, most policymakers assumed
that without the stimulus of war, the world economy would again collapse. It didn’t and the post war period until 1973
saw the greatest (and most equitable) growth the world has ever seen. The
secret of golden age prosperity was the rapid transmission of productivity
gains into median wage gains. Advertising, combined with rapidly rising wages
ensured that demand grew as fast as supply.

Since Reagan and Thatcher the
share of income going to labour has precipitously declined. The benefits of
productivity gains have gone almost exclusively to corporations, their
shareholders and consumers. The dilemma
of the post 1982 era was how to keep demand growing while wages were
stagnant. The answer, of course, debt
fuelled consumption financed by rising asset prices. Easy money stimulated asset prices. Higher asset prices encouraged more lending.
And that lending allowed consumers to spend more even as wages stagnated.

The Reagan Thatcher era, beloved
of the right, has been a disappointment to the rest of us. GDP grew faster in the universally lambasted
1970s than it has ever since. More to the point, since the financial crisis,
the asset price inflation/debt fuelled consumption paradigm has stopped
functioning. Our economic policy makers are hoping that ultra low interest
rates, combined with massive central bank purchases of previously dubious debt
will bring on another bubble, allowing us to party like it is 2005 but so far
the results have been disappointing.

Imagine a widget factory. In 1900
100 men working all day made one widget.
By 1950 100 men could produce 10.
Today, 20 men can make 100. Obviously society is better off when we can
produce more with less. The problem is
for the 80 men who lost their jobs.
Wages have stagnated since 1973 in large part because we need fewer
workers and that is the result of inexorable productivity increases. With the rise of robots, even fewer workers
will be needed.

Karl Marx got one thing
right. Capitalism is the most productive
economic system the world has ever seen.
By rewarding microinovations, we are each year able to produce more
goods and services with less labour and capital. Scarcity, the bane of our
species since time immemorial, has largely been banished. For some time now the problems of supply have
been behind us. We have stimulated
demand with war, with advertising and unionization, with asset price inflation
that has created a new gilded age. We
can do better.

A basic income guarantee, a policy
advocated by such socialist radicals as Richard Nixon will create a kinder
gentler society while allowing our economy to grow. During the 1930s, to many
capitalism seemed doomed. Keynes and
Franklin Delano Roosevelt saved it by bringing its benefits to more citizens. Basic income can do the same today. It is the wave of the future. If you
disagree, please come up with a better idea.
How else do you suggest we stimulate demand in a world that every year needs fewer and fewer workers?

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Comments

"Basic Income makes capitalism a little more bearable, but ultimately saving capitalism is a very bad idea"

Completely agree with this and with the notion of a RBE.

Capitalism is undergoing its terminal historical crisis. The battles of the moment and of the next few decades will be over the foundations of the historical world-system(s) to replace the 500 year old Capitalist world-system.

I base my views on World-Systems Analysis, particularly the writings of Immanuel Wallerstein.

http://www.iwallerstein.com/intellectual-itinerary/

Posted by R. T. Greenwood on Nov 2nd 2013 10:57

I disagree with your premise that fewer and fewer workers are needed. The world is in recession and the GDP numbers being produced are phony.

Posted by Andrew Hallan on Nov 2nd 2013 9:11

Many thanks to Klaus for the reference to Berger's article. Berger unrealistically supposes a sudden transition to BI, with the structure of taxation remaining as it is (except for the replacement of unemployment and pensions contributions). Considering the big changes in expectations and behaviour that BI implies, it is surely essential to map out possible (long) transition paths.

This brings us to Guy's point about a transition to a sustainable economy. Ecological economics has got a long way to go in developing the RBE idea. There are however long-standing arguments in favour of altering taxation to discourage status-driven consumption that does not add to net welfare overall. So why not envisage the use of progressive consumption tax (gradually introduced) to (gradually) finance the introduction of BI? At least it would be worth running the numbers to see if this might work.

Of course there is a paradox in my suggestion. From the point of view of sustainability ecologists would wish status-driven consumption to fall in response to the progressive consumption tax. From the point of view of financing BI we would need status-driven consumption to be resistant to it. I suspect that given the nature of human beings the second outcome is more likely, making it a reliable support for BI.

John: I fail to see your rational for the expectation that "the (BI) level will be (should be?) quite low."
Why, exactly? Lest we spoil the children by sparing the rod? Must we keep people impoverished to keep them properly incentivized, towards being respectablably productive, and away from what you imply to be their proclivity to mooch? Might as well build Skinner boxes for all of us ex-worker bees.

Gary: Granted, it seems clear we need some way out of capitalism's collision course with ecological limits. The inherent tension between ever-rising demand (our religion's categorical imperative) and the obvious need to reduce consumption to sustainable levels poses an existential dilemma: can we get out of this alive?

But how, exactly, is this "RBE" concept supposed to work, after we've all agreed on somehow adopting more sustainable practices? Defining the mechanisms of our wished-for new economy isn't as easy as describing our problems. Presumably, we intend the new model to be democratic. Who sets policy? What evidence indicates our model will actually do the job of meeting our material needs? Before answers are forthcoming, Tom's demand for "a better idea" than BI seems to remain unmet.

Posted by Klaus Kastner on Nov 1st 2013 20:38

I suggest you read this article by Jens Berger who runs the Spiegelfechter blog and contributes to the NachDenkSeiten blog. As as leftist, he would ideologically support a basic income. As an economist, he says it wouldn't work.

http://www.nachdenkseiten.de/?p=15187

Posted by Mark Wilkinson on Oct 31st 2013 11:12

This is a really interesting article. My main questions are:

1. Can you see basic income becoming a reality within the next 50-60 years?

and

2. Speaking from a UK perspective, is Universal Credit the first tentative step towards such a system?

Posted by Ralph Musgrave on Oct 30th 2013 18:27

I’m not sure about Tom’s claim that raising demand is a big merit in the basic income idea. Anyone who has worked through a basic introductory economics text book knows how to raise demand, so raising demand is easily done in the absence of the basic income idea.

But off course Tom is right to say “That policymakers have forgotten what they learned in their first economics class one of the mysteries of the age.” I.e., and in plain English, we are plagued by idiots in high places, and that includes some university economics departments: notably Harvard.

So as a method of countering idiocy in high places, the basic income idea might have something going for it. But I’m reluctant to believe things are quite that bad.

Posted by Douglas Lindsay on Oct 30th 2013 17:36

"Universal" seems to have dropped out of the basic income discussion.
So...who doesn't get it?

Posted by Guy Fraser on Oct 30th 2013 15:57

Basic Income makes capitalism a little more bearable, but ultimately saving capitalism is a very bad idea. At it's core, capitalism is built on the ideology of the cancer cell: Infinite growth, on a planet with finite resources. Thus, the ultimate outcome of capitalism is to destroy the planet we live on, for profit (ecocide, terracide).

BI will help people view money differently, it will solve many social injustice issues that are caused by financial apartheid. But ultimately, we must eradicate capitalism if the planet is to survive. We can't consume our way out of overconsumption.

What should we transition to? Something like a Resource Based Economy (RBE) - specifically a socioeconomic model that puts the wellbeing of people and the environment first, and above all else. There are issues with the current concepts of an RBE, it does need more refinement, but ultimately until we ditch the destructive notions such as 'profit' and 'consumption' anything else is merely rearranging deck chairs on the Titanic.

Posted by John Logsdon on Oct 30th 2013 13:44

Basic income is a clear way out of many problems not only in promoting consumption, particularly as jobs as we know them will disappear. There are many moral arguments in favour of BI but you are right - it is business that needs to be persuaded.

As it implies a withdrawal of basic tax allowances (while putting more net money in the workers' pockets) it also means that wages can be cut so that those in work get the same while at the same time the poor can become effective consumers. The minimum wage will also need adjustment downwards. By cutting wage bills, it will give an advantage to companies in those countries that adopt it first.

The problem is how to break the log jam that is in the minds of many that this will just pay people to do nothing, Osborne for one. Some people will do nothing but others will welcome the opportunity to grow new businesses, volunteer, help care for the elderly and so on without having to beg some clerk at the job centre not to cut their benefit.

As the level will be quite low (I would suggest £100/week for adults, £130 for pensioners, £30 for children and even retaining the household BI cap if it were to work) there will still be a strong incentive for people to do something constructive with their lives. There is also the problem of housing benefit which needs to be revisited by low cost new build with help to buy.

It would be relatively easy to make the transition - after integrating NI with the tax system (long overdue), just set the tax code to zero and pay BI instead. This way it could be rolled out over a period of time, sector by sector.

Posted by Martin J on Oct 30th 2013 13:03

Great article! I take it you have read Paul Krugman in NYT and Matt Yglesisas at Slate, touching on the same subject?

Would you consider adding a link to www.basicincome2013.eu or even better http://sign.basicincome2013.eu to this post and future posts?

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